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The new Gold Rush: Investing in the infant milk industry

June 12, 2013 by Eric BLANCHARD

This article is Part 1 of a focus on "Investing in the infant milk production"

As you must have noticed in the last months, press headlines have been highlighting the booming demand for infant milk in Asia which triggers today rationing in Europe and makes prices jump everywhere. With its growing population, the Middle East is also increasingly asking for infant milk supplies even if the stocks are at their lowest...

These sociological changes, initiated a few years ago, have pushed the infant milk industry to elaborate its strategy and it is now widely known that manufacturers around the world are arming themselves to take part in this new Gold Rush. Numerous big projects of new infant milk plants are under construction around the world: New Zealand, China, Switzerland, Holland, Germany, France, Ireland, UAE, South East of Asia…

But why such a rush? Three combined factors may explain this change in the way of consuming infant milk:

Developing countries have booming demography

Women join the workforce to sustain the family incomes (and cannot breastfeed for a long period)

The middle class is having a higher purchase power, a better education on feeding infants and children and a desire to diversify its nutrition

Below are interesting figures showing the population growth per region:

Both on the map and on the charts, we can see the growing importance of Asia, with China and India but also with countries like Bangladesh, Vietnam, Pakistan, Malaysia.

China: around 15-18 million babies born each year, the total population represents 19.2% of the world population. If the infant milk industry exists locally, the Chinese people ask for safe infant milk formulas made outside the Mainland, as a majority of the population does not trust in the national companies producing baby food in China… Today the conflict with Hong-Kong is at its highest (see related article)

India: around 28 million babies born each year, the total population represents around 17.5% of world population and it is expected to outpace China in 2025-2030, depending on sources. Its young population, 28 on average, will drive the country’s development in the next three decades.

Other figures by the United Nations show where the demography is growing: South East Asia, Arabic countries and Latin America (with a focus on Brazil) are expected to be big nations to count on in the next decades.

So at first sight, investing in the infant milk business seems potentially interesting and promising on a long term view.

These new projects are often carried out by big players of the market like Nestlé, Danone, Mead Johnson and Abbott because they have strong brands and developed ranges which are expected by consumers to follow the market’s evolutions, and so investments are needed. If these multinationals have the money to build plant and conduct researches, the commercial outlets and strong marketing teams, smaller companies can also enter the game if they adopt the right strategy and manage to deal with the 3 important barriers: the cost, the knowledge of the market and the know-how in the production of infant milk.